Recent Posts

About

DailyFinance brings together some of the industry's top experts on finance, business news and analysis. We have come together with one common goal - to provide you the information you need, when you need it, to help you live a better life financially.

McDonald's (MCD) this week said it is dropping the Angus burger from its menu at U.S. stores.
It's part of a bigger picture battle between the leading fast-food burger companies to emphasize lower-priced items.

The Angus burger was one of the most expensive offerings on McDonald's menu, costing four to five dollars, depending on your toppings.

Another factor: beef prices are at a 10-year high, partly because of last summer's severe drought.

At the same time, hard-pressed customers are craving better deals. They want more options on the dollar menu.

Burger King (BKW) and Wendy's (WEN) are fighting the same battle. Wendy's is more aggressively promoting lower-priced items. Earlier this year it rolled out what it calls the "Right Price, Right Size" promotion. It includes more options costing less than two dollars. Wendy's is more heavily promoting its 99 cent items such as the Jr. Cheeseburger.

Burger King has been adding more items to its value menu. The Whopper Jr., for instance, costs $1.29. It's also been running a "2 for $5" promotion for the Whopper and other sandwiches.

Arby's also has been testing out new value meals. And because of high beef prices, all the major fast food chains are pushing more chicken and turkey burger options. McDonald's recently added chicken McWraps; according to Ad Age, the company sees the wrap as a way to keep customers from defecting to Subway.

All of this comes at a time when the fast-food industry is barely growing. McDonald's global same store sales last month fell six tenths of a percent last month while Wendy's sales rose just one percent.

Still, the cost-conscious consumer is the mainstay of the fast-food business, and the big players have to cater to their preferences. These customers spend less on each visit, but they visit more frequently. So the fast food companies are willing to sacrifice profit margins to increase their share of the market.

And the problems are not just here at home. These companies are facing very sluggish growth in key markets overseas, especially in Europe and Asia. Nor has China turned out to be the gold mine they expected. Yum Brands' (YUM) KFC unit, with more than 7,000 restaurants there, has struggled with bad publicity related to health concerns about its chicken supplies.

Despite these problems, most the fast-food company stocks have done pretty well. McDonald's and Burger King are both up 13 percent this year, and Wendy's has jumped 23 percent. Yum Brands is lagging a bit, up just five percent.

Target (TGT) was the second most-visited discount retailer in the U.S. during March, behind only Walmart. One reason was the number of Target stores. The company has been attempting to take on Walmart by adding grocery sections to more stores, and by offering groceries at competitive prices. This has helped Target maintain strong financial performance despite the weak economy and its additional spending on its launch in Canada. Most Americans surveyed by the American Customer Satisfaction Index rated Target well: It finished in a three-way tie for second place in the department and discount store category, behind Nordstrom.

As recently as 2011, Taco Bell (YUM) was struggling to keep competitor Chipotle (CMG) from taking its customers, with flat or negative same-store sales growth in each quarter that year. This changed in early 2012, when Taco Bell released the Doritos Locos taco, a hard taco with the flavor of Doritos nacho chips. That item help the company increase comparable sales in every quarter of 2012, as the company sold more than 1 million of them a day. In March, Taco Bell CEO Greg Creed told The Daily Beast the company had hired 15,000 workers just to meet demand for the Doritos Locos taco in 2012. Last year, the company's sales increased by $1 billion to $11.8 billion, and net income rose by roughly $300 million to $1.6 billion.

CVS (CVS) is the top provider of prescriptions in the country, filling or managing more than 1 billion prescriptions a year. It has operates in 45 states, and 75% of the people in the markets it serves live within three miles one of the company's 7,400 retail stores. Last year, CVS estimated it gained millions of new customers following a dispute between Walgreens (WAG) and Express Scripts (ESRX), the prescription management service. Even after the dispute was resolved, CVS was able to retain many customers who used to fill prescriptions at Walgreens. In the first quarter of 2013, the company's revenue grew 5%, as same-store sales grew 4%.

Despite CVS's gains, Walgreens is still the most visited drugstore in the country. According to RetailSails, the company has the most stores, at 7,890, and the largest average store, at 14,400 square feet, among all drugstore chains. The company's tenure in first place may not last, however, thanks to that now-resolved dispute with Express Scripts. The company spent nearly nine months without using Express Scripts, the largest prescription management service in the country, losing an estimated 60 million prescriptions to rivals. CVS estimates that it will retain roughly half of the Walgreen's customers it gained as a result of the squabble.

In 2011, Wendy's (WEN) overall sales surpassed Burger King's, making it the second-largest burger chain in the U.S. But Wendy's growth has actually been quite modest as of late, with same-store sales in North America growing just 1.6% from 2011 to 2012. (In fact, Wendy's first-quarter profit just tumbled 83%.) Wendy's is in the process of remodeling many of its restaurants with more comfortable seating arrangements and flat-screen televisions. However, not all of its stores are getting upgraded. The company announced in March it was going to shutter as many as 130 underperforming stores. Last year, the company also made significant changes in its marketing strategy and menu in order to attract customers who have been lured in by chains such as Panera, which promotes healthier food at slightly higher prices.

There is a reason Starbucks (SBUX) is No. 1 in the coffee category: Sales in the U.S. grew by nearly 346% between 2001 and 2012, and the number of stores grew by 195%. The company has struggled in the U.S. in the past several years, but its stock has continued to rise as global sales have helped to pick up the slack. Worldwide, Starbucks revenue grew by 7% in 2012 compared to 2011. This included a 15% growth in the Asia/Pacific region. In its early years, the company did not place much emphasis on its food items. However, that has changed in recent years, especially following the purchase of Bay Area pastry chain La Boulangerie. However, some industry analysts remain skeptical of Starbucks' ability to compete for customers' breakfast purchases.

The last decade or so has been especially tumultuous for Burger King: It was taken private in two separate instances, in 2002 and in 2010, and became a public company again last June. The company hasn't performed well in years, with an average growth rate of -0.1% between 2001 and 2013, which allowed Wendy's to take its No. 2 burger chain title. A restructuring that began after the second buyout in 2010, in which many stores were sold to franchisees, has cut deeply into the company's sales. But not all news for Burger King is bad news: Nearly one quarter of Americans visited a Burger King in March.

Between 2001 and 2012, Subway's sales in the U.S. grew nearly 169%, while the number of stores grew nearly 93%. Subway is by far the largest fast food chain in the U.S., with almost 26,000 restaurants. The company has been able to fuel its large growth through both international expansion and a domestic focus on healthy eating, most notably using ads featuring Jared Fogle -- a man who lost an impressive amount of weight while regularly eating the company's sandwiches. In 2013, for the ninth year in a row, Subway received the highest score in the country in a Harris Poll EquiTrend study in the "quick service restaurants" category and was named brand of the year by that group.

Walmart (WMT) is by far the largest retailer in the U.S. and in many parts of the world. It was recently ranked No. 1 in the Fortune 500 after it reported more than $469 billion in worldwide revenue in 2012. While international markets are critical to growth, the U.S. market provides the majority of its revenue: U.S. sales comprise 62% of the company's sales. In the last five years, Walmart has added 450 U.S. stores, a 13% increase overall. However, according to Bloomberg, the company's U.S. workforce has dropped 1.4% in that time frame, leading customers to complain about a lack of inventory and longer check-out lines -- and to defect to rivals such as Target and Costco. In February, the American Customer Service Index ranked Walmart the lowest of all discount retailers, the sixth year in a row the chain has held or tied for the last place spot.

Almost half of all Americans visited a McDonald's (MCD) in March, but, U.S. sales of $8.8 billion weren't even the company's largest revenue segment last year. Rather it was the company's sales in Europe of $10.8 billion. According to Technomic, McDonald's same-store sales grew at an annualized rate of nearly 5% from 2001 through 2012. However, this has slowed recently: The company's systemwide sales in the United States rose by just 0.3% from the year before in the final quarter of 2012. The company is already so large that its bottom line is deeply linked to global economic conditions, leaving it unable to raise prices for now. In order to boost sales, McDonald's CEO Bob Thompson told CNBC the company may try allowing U.S. stores to serve breakfast all day.

Add a Comment

2 Comments

The food at McDonalds is horrible...cooking in those tray has ruined the franchise. The burgers (and the once to die for Egg McMuffin) are bland at best...usually cold and seved on a stale crumbling bun. I remember growing up(I'm in my mid fortie's)..it was a big event for the whole family to go to McDonalds..and oh my god..a birthday party in the back room ..how much cooler could things get?..now I can't drag my 2 boys to a Mickey D's...at my local McDonalds one has to walk the gaunlet of employees blowing smoke in you face right in front of the main entrance..then you get greeted by an order taker( and yes often a manager)..who may or may not put their cell phone down long enough to muster up a few english words..to take your order...If McDonalds concentrated on quality..chains like Red Robin, Five Guys..Jakes...wouldn't even be in business. Our family would rather pay six dollars for a large juicy fresh burger than one dollar for a tray cooked..tasteless..cold..hockey puck...and btw...kill the whole goumet milkshake thing...and bring back a regular cup..and keep the damn shamrock shake on the menu year round!!!!!